Resource Commodities

Prophecy Development Corp. (TSX: PCY) CEO John Lee on Why Vanadium Has Been the Best Performing Electric Metal & Recent Partnership with NWME to Advance the Gibellini Vanadium Project

March 14, 2018

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the Executive Chairman of Prophecy Development Corp. (TSX: PCY)(OTC:PRPCF), Mr. John Lee. John, how are you this morning?

John Lee: Hi, Gerardo. Good to be back.

Gerardo Del Real: It was important for you to be back because we haven't chatted since September. And since then the vanadium price is up over 30%. It was up over 130% in 2017 and it actually outperformed better known metals such as lithium and cobalt and nickel; the metals that tend to get the bulk of the attention when it comes to this energy storage, battery and electrification play. You also on the company front have had some very important news recently that I want to get to. But before we get to that I'd love your take on the overall vanadium market. You're one of the leading experts in the space.

John Lee: Gerardo, you're correct in that vanadium is actually the best performing electric metal by a long stretch. It's gone up over 140% in 2017 from less than $4 a pound and closing the year at about $10. And in January the bull market continued and today, March 14th, it traded last night at $14 a pound. It's broken out at an eight-year high and it's making new high on a daily basis. It is getting good coverage from mainstream media now. Bank of Montreal put out a very bullish research note in January and as well as Bloomberg starting to compare vanadium performance versus the lithium and cobalt counterparts.

Gerardo Del Real: Excellent. On the company front you had some very important news here a couple of days ago. You entered into a technical advisory and cooperation agreement with NWME. And a little context on who they are. They have over 12 operating mines and hundreds of geologists and metallurgists. This is important because you're advancing the Gibellini vanadium project and I'd love for you to talk about that specific piece of news and what it means for the company.

John Lee: Gerardo, as you recall last time we talked it was about November four months ago, we acquired the Gibellini vanadium project in northeastern Nevada in the Battle Mountain region, which Frasier Institute ranked as the fourth best place to do business (in mining) in the world and certainly the best place for mining investment in North America. It's a very advanced deposit with over $20 million spent on it. First of all in talking about the news, Northwest Nonferrous Mining Group, they are one of the largest mining group in China, they're state owned. And they own 12 operating mines. They're the third largest (Chinese) lead and zinc producer and they own the largest black-shale vanadium project in the world, obviously also in China. The deposit is similar to our project and that's why we reached out to them late last year through my networking contacts in Asia.

And they just concluded a site visit as you're well aware, your associate Nick Hodge was there as well. Over 20 people were at the property. Everybody was very impressed. And NWME, in particular, has over a decade of experience in mining, extracting, processing vanadium. And we thought that was a very important key factor in choosing them as our partner because currently there's not a vanadium mine in production in North America. So therefore, instead of going over these desktop studies with American labs and researchers we thought we'd opt to partner with a technology partner with proven commercial production experience.

So therefore, we couldn't be happier of this group and they took the time and dispatched a team of five people with expertise in mining, processing, extraction. We had a very, very good exchange of knowledge. And we could also talk about the new appointments we have made in strengthening our team earlier this year. We just couldn't be happier with the situation. We're about to go to China in April to discuss further levels of cooperation with their help to help us design the engineering and the plants, to process the vanadium. And also potentially, an investment opportunity for them to establish an equity stake in our company.

Gerardo Del Real: Now you mentioned the additions to the team and let's talk about that because they're going to play an important part moving forward. You are anticipating an independent economic study in April, I believe, and you're also in the process of getting some permit work.

John Lee: Permitting, yes.

Gerardo Del Real: Correct. Now I understand that there was significant baseline and feasibility work carried out by Giubellini's prior project operator. So if we could talk about the additions to the team and what that looks like moving forward.

John Lee: You know what, Gerardo? I feel like I'm in a Star Trek movie. We're moving light warp speed ahead. I'm just a little bit amazed myself once you sort of outlined the progress that was made. The last four months including Christmas, New Year and Chinese New Year, we have found a great technical partner and potentially an equity partner. We have strengthened our management team which is led now by Michael Drozd. He has been with Barrick as the chief metallurgist with over 40 years of experience, and with patents in gold and vanadium recoveries. Before Barrick he spent several years at this Gibellini project with its previous project operator. By bringing him onboard he brings a lot intimate knowledge of vanadium metallurgy as well as this project in particular. There was a very long and fruitful exchange between Michael Drozd and this Chinese partner. It seems like they had been known in previous life because they're talking really on the same wavelength of Nobel prize type of discussions of which nobody really understood.

Gerardo Del Real: Excellent.

John Lee: And we also in addition brought on a permitting consultant. His name is John Young and he has 40 years of experience in permitting compliance and development of mine reclamation and closure activities. Specifically he had permitted a number of environmental impact statements in western United States. He lives in Reno, about 200 miles, three hours from Gibellini. We are going full steam ahead. Given the previous operator had already gone down to their last quarter mile in the permitting process, saving us millions of dollars and shaving up to three years out of a five-year permitting cycle. We'd expect to make some news in April with some of the permitting application filed with the state and the federal.

And given that just really quickly, Gerardo, that in December after we talked, Donald Trump made some tailwind for our project. I think number one he classified vanadium as a critical metal United States. And he's given the direction to all permitting agencies, whether state or federal, to fast track and expedite the permitting of vanadium projects. This was reflected very clearly in our meetings with the state agencies just a couple weeks ago. That's very positive.

Secondly, Donald Trump end of last year lowered the tax rate from 35% to 21%. As you talked about this economic assessment, there was a feasibility study done on the project in 2011 based on vanadium price of $10.80 and the numbers are very, very favorable at that time. Now vanadium is 30% higher than it was in 2011 and we will be getting bump in the NPV and IRR numbers, given the lower tax brackets. A combination of expedited permitting, favorable tax environment and permitting environment, and excellent team in place with a great technology partner that's well endowed technically and financially, we are in very, very solid footing, Gerardo, to transition and to transform Gibellini to become the first vanadium mine in North America.

Gerardo Del Real: It's sounds like you're going to have a busy rest of the year John. I appreciate the time. April hopefully you're able to come back and provide us a further update because it sounds like you got a lot of news and a lot of catalysts here in the next several months.

John Lee: Well, you know what? Recently Pala [Investments Ltd.] was interviewed by Bloomberg and he was talking about, hey look, all that vanadium needs is an Elon Musk moment. That's what really kicked off the lithium sort of shebang. I think given the surge in vanadium prices because of its demand from all angles. In addition to battery technology, aerospace, and also traditional reinforcing bar. All over the world there's no inventory globally. There's a huge shortage in vanadium and there's no supply coming downstream because of environmental constraints out of China. I don't even think that we're going to need a Elon Musk. I think the situation is so volatile that Australia vanadium issuers are making daily highs right now. I believe it's only a matter of time before Prophecy and its peers make a good run at it.

Gerardo Del Real: You've added to your team, very impressive on that front. You have a great share structure and you have a great project. I'm looking forward, John, to having you back on for further updates.

John Lee: Thank you. Insiders have been buying. The ticker symbol is PCY under the TSX and PRPCF under the OTCQX. Gerardo, thank you for the opportunity.